Let’s Be Honest. Home Prices Must Fall!

OK, I am going to say the quiet bit out loud. Sorry folks, if we want housing affordability to improve home prices must fall! Even the simple trace tracking wages growth to home prices tells that tale, but of course its not a message many of those holding property want to hear! I still get loads of comments from people who watch my shows poo-pooing any thought of a price fall of any size. Consider the New Zealand property story, because in Auckland prices are now 23% from their peaks, and in Wellington, they are down 25.4% according to Cotality. Nationally they are down 17% from peak; and yet actually, it has not been the end of the world. People have coped with wealth destruction along the way. Rentals have eased and affordability has improved. As if by magic, and yes, they also cut migration. But in Australia, politicians are not being straight with us. Housing Minister Clare O’Neil found herself on the sticky paper on Wednesday morning when taken to task by Channel Seven’s Natalie Barr on breakfast television. “So, Clare, you’re saying that you don’t want property prices to go down to make it easier for first home buyers, that’s just something that’s happening?” posited Barr. O’Neil: “What we want to see is sustainable growth, Nat.” Barr: “So you want them to go up?” O’Neill: “Well, Nat, what we want to see is a sustainable growth. We certainly need to see affordability improve.” Barr: “Is that up or down?” And on it went until O’Neil distanced the budget from what was happening in the housing market. “The government’s changes, Nat, are not what’s driving house prices in our country principally.” ‘Making things fairer’ As I discussed in an earlier show, the Treasurer is wanting to blame the RBA rate hikes for easing markets, while the RBA says Government policy has a critical role to play. Both are true, together with the availability of credit, because actually the availability and size of mortgages is the best proxy for home price momentum. Lift rates, cut tax breaks, reduce borrowing power, and prices will fall, like clockwork. Its not that hard. And I would also add, build more homes, or reduce migration, and so demand, and that will also weaken prices. Coalition housing spokesman Andrew Bragg, said this week. “Clare O’Neil just should have said the truth that everyone knows, that house prices for young people in this country are too high. They’ve been too high for too long and she should have said, ‘Look, house prices are too high’,” he said. “Australians are looking for authentic leadership. They’re over the bullshit. What they want to hear from their politicians are honest answers. And the honest truth is that house prices in this country are too high for young people, and they should go down.” So how far will prices fall? Will it be like New Zealand, or worse. Well, that depends on whether the Government turns back to supporting the market, yet again, or whether they really want to see prices drop. I do note reports of some politicians selling their investment properties, which might be a signal, or is that simply insider trading? But the right thing, to address affordability is the allow home values to fall, and frankly fall hard. Not a message many with paper wealth in housing want to hear, but actually the right thing for the future of the country. But such falls will also create heartburn for the banks who are sitting on potentially risky loans, as prices fall, and the broader fall-out will probably push unemployment higher. And if you want to track the likely path of property prices, then unemployment trends is the one to watch, after credit growth. http://www.martinnorth.com/ Details of our one to one service are here: https://digitalfinanceanalytics.com/blog/dfa-one-to-one/ Go to the Walk The World Universe at https://walktheworld.com.au/ Find more at https://digitalfinanceanalytics.com/blog/ where you can subscribe to our research alerts Please consider supporting our work via Patreon: https://www.patreon.com/DigitalFinanceAnalytics The full detailed set of post code data is available as a subscription service. Or make a one-off contribution to help cover our costs via PayPal at: https://www.paypal.me/MartinDFA We also can receive bitcoins at: 13zBL1oRib9VJu8Uc9zUGNhxKDBBgUpDN1 Please share this post to help to spread the word about the state of things.... Caveat Emptor! Note: this is NOT financial or property advice!! 🚨BEWARE OF SCAMMERS🚨 As there are accounts impersonating Walk The World in the comments on YouTube, note that our comments will have a distinguishable verified symbol. And remember that we will never message you asking you to give us money or talk to us on other platforms such as WhatsApp or Telegram